Dear Finance Minister: The World Bank Has Cleared the Air on Tobacco Taxes

This Wednesday, you will be attending an event on tobacco taxes at the World Bank’s annual meetings, where President Jim Kim and Mayor Michael Bloomberg will be speaking. You will be attending this high-level discussion along with about 14 other Finance Ministers. While the meeting may look routine, it is actually one of the most important you will attend this week. You will be discussing how the Finance Ministry can save more lives than the Minister of Health—by raising tobacco taxes in a way that best discourages smoking.

Documentation shows that raising tobacco taxes has always led to reduced smoking and higher revenues. However, you may recall that the last time our Ministry debated this issue, the tobacco industry lobbied you to raise taxes slowly, to be cautious about the impact on evasion, and not to penalize the poor.

The report published by the World Bank last week—Tobacco Tax Reform: At the Crossroads of Health and Development—explains why the cigarette company advice we received made our tobacco taxes ineffective at reducing smoking. Indeed, the IMF’s guidelines on this topic left us with a great deal of uncertainty about what to do. By contrast, the World Bank report is forthright in explaining how to make tobacco taxes effective by designing them to alter smoking behavior and discourage young people from starting. What we need is to “go big, go fast” (implement large increases in tobacco taxes), “attack affordability” (raise taxes with inflation, or better yet, incomes), “change expectations” (make a long-term commitment), and “tax by quantity” (for simpler administration and more effective behavior change).

The report also provides us with answers to the tobacco lobby’s deceptions next time they show up:

• The poorest people in our country are the ones who suffer most from the effects of smoking—reducing their life spans and household income. They are more likely than the rich to reduce cigarette consumption when faced with these taxes, and therefore more likely to benefit.
• Cigarette companies have colluded to smuggle and evade taxes in Canada and elsewhere. When we raise tobacco taxes, the World Bank report explains how we can manage the risk of illicit trade and evasion. A key part of this will be monitoring the cigarette companies closely because large-scale smuggling is difficult without their complicity.

When you meet President Jim Kim, I suggest asking him the following questions.

Will the World Bank:

1. make tobacco taxes a regular part of the annual fiscal policy dialogue with member countries who have signed the Framework Convention on Tobacco Control?
2. promote regional action to improve tax enforcement?
3. provide backing to resist pressure from the tobacco industry?
4. include increased tobacco tax implementation in our next fiscal policy loan?

For reading during your flight, “Tobacco Taxes Need to Be a Much Bigger Part of the Fiscal Policy Discussion” is a blog post by Masood Ahmed, president of CGD and former director at the IMF, who will be on the World Bank panel. You might also read this post by William Savedoff, a CGD senior fellow, who will be a moderator at the meeting.

It is rare for our Ministry to have an opportunity to have such a big win on population health and still raise revenues. Now that the World Bank has come out with such clear and forceful advice, it will prove much easier to do.